Wednesday, June 9, 2010

Renovation Spending in 2009 up by $4.5 Billion Across 10 Major Centres

An estimated 2.1 million households in 10 major surveyed centres indicated they completed renovations last year according to the Renovation and Home Purchase Survey released today by Canada Mortgage and Housing Corporation (CMHC). The average cost of renovations was approximately $12,100.

The Renovation and Home Purchase Survey reports on actual renovation expenditures made in the previous year, as well as intentions to buy or renovate a home in 2010 in the following 10 major centres: St. John’s, Halifax, Québec City, Montréal, Ottawa, Toronto, Winnipeg, Calgary, Edmonton, and Vancouver.1 The survey provides timely information on renovation market trends.

“More than $25.8 billion was spent on renovations in 2009 across the 10 major surveyed centres, an increase of about $4.5 billion compared to 2008,” said Gustavo Durango, Senior Economist at CMHC. “As well, when Canadian homeowners were asked about their renovation plans for this year, 43 per cent indicated that they intend to spend $1,000 or more by the end of 2010.”

Half of the households surveyed reported that the cost of renovations undertaken in 2009 was in line with what they had budgeted, while 35 per cent said that they went over their planned budget for the renovation.

Twenty-seven per cent of households that undertook a renovation project hired a contractor for a portion of the work. Twenty five per cent of renovations in 2009 were completed by “do it yourselfers”. However, many households (42 per cent) chose to contract out the entire renovation project.

Across the surveyed centres, 76 per cent of households who undertook renovations in 2009 paid for the work from savings, a slight increase from 75 per cent in 2008.

The main reason given by households for renovating in 2009 was to update, add value or to prepare to sell (52 per cent). Thirty-two per cent said the main reason for renovating was that their home needed repairs. The top three renovations completed last year were: remodelling rooms (34 per cent); painting or wallpapering (29 per cent); hard surface flooring and wall-to-wall carpeting (27 per cent).

Of the 10 major surveyed centres, the highest percentage of homeowner households that renovated in 2009 was in St. John’s at 59 per cent, followed by Ottawa at 58 per cent, and Halifax and Winnipeg (both at 55 per cent). The centre with the lowest proportion was Montréal at 45 per cent.

Renovation intentions for 2010, across the 10 surveyed centres, are highest in St. John’s, where 55 per cent of consumers indicated they plan to undertake renovations costing $1,000 or more. This is followed by Halifax, Winnipeg and Ottawa (all at 50 per cent). The proportion of potential renovators is lowest in Québec City and Montréal (both at 39 per cent).

On the home purchasing front, six per cent of all households indicated they bought a home in 2009, unchanged from 2008. The largest share of homebuyers was in Edmonton (nine per cent), followed by St. John’s, Quebec, Ottawa and Winnipeg (all at seven per cent). The lowest share of homebuyers was in Toronto (five per cent).

Five per cent of households across the surveyed centres intend to purchase a home that will be used as a primary residence in 2010.

Home buying intentions are strongest in Edmonton where seven per cent of households reported that they are considering buying a home this year, up from six per cent in 2009. Purchase intentions are the lowest in St. John’s and Ottawa at four per cent (these were the only jurisdictions reporting lower intentions than last year, a decline from five per cent in 2009).

CMHC 2010-06-09

May Housing Starts

The seasonally adjusted annual rate of housing starts was 189,100 units in May, according to Canada Mortgage and Housing Corporation (CMHC), down from a revised 201,800 units in April.

“Housing starts decreased in both the singles and the multiples segments in May,” said Bob Dugan, Chief Economist at CMHC’s Market Analysis Centre. “The decrease in housing starts in May is consistent with our forecast that housing starts for 2010 will reach 182,000 units.”

The seasonally adjusted annual rate of urban starts decreased by 9.5 per cent to 165,200 units in May. Urban multiple starts decreased by 5.6 per cent to 92,800 units, while single urban starts decreased by 14.1 per cent to 72,400 units.

May’s seasonally adjusted annual rate of urban starts decreased 21.8 per cent in the Prairie region, 13 per cent in Quebec, 12.9 per cent in British Columbia, and 2.7 per cent in Ontario. Urban starts increased 23.3 per cent in Atlantic Canada.

Rural starts were estimated at a seasonally adjusted annual rate of 23,900 units in May.

CMHC June 8, 2010

Housing Market Push and Pull: Economic Growth Versus Affordability

BCREA Housing Forecast - Second Quarter 2010

Vancouver, BC – June 7, 2010. The British Columbia Real Estate Association (BCREA) released its Housing Forecast for the second quarter of 2010 today.
BC Multiple Listing Service® (MLS®) residential sales are forecast to ease back 3 per cent from 85,028 units in 2009 to 82,350 units this year, before increasing 4 per cent to 85,900 units in 2011.

“Eroding affordability will trim home sales by 3 per cent this year despite improving economic conditions and related employment growth,” said Cameron Muir, BCREA Chief Economist. “The push and pull of positive economic growth versus rising mortgage interest rates is expected to keep BC home sales near their 10-year average of 85,569 units both this year and next.”

The average MLS® residential price is forecast to climb 6 per cent to $494,600 this year and remain relatively unchanged in 2011, albeit increasing by 1 per cent to $499,700.

“Strong consumer demand in Vancouver, Victoria and the Fraser Valley was largely responsible for driving the average home price in the province higher over the last three quarters,” added Muir. “However, demand has moderated in those markets and a larger inventory of homes for sale has pulled market conditions into balanced territory, providing less upward pressure on home prices.”

“Copyright British Columbia Real Estate Association. Reprinted with permission.”

Resale housing forecast revised

OTTAWA – June 2, 2010 – The Canadian Real Estate Association (CREA) has lowered its forecast for home sales via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards and Associations. The revision reflects a weaker than expected start to the year in British Columbia, and recent developments that pulled forward the timing as to when sales are expected to ease in other provinces.

CREA’s previous national forecast was heavily influenced by British Columbia and Ontario forecast trends, and this remains the case in the revised forecast. While sales activity is unfolding as expected in Ontario, the decline in affordability in British Columbia impacted sales in the province during the first quarter.

Additionally, changes to mortgage regulations announced in February are expected to marginally impact activity. The changes prompted some homebuyers to finance their home purchase before the new regulations took effect in April, which pulled forward a number of sales that would have otherwise taken place at a later date.

April also saw the Bank of Canada drop its conditional commitment to keep interest rates on hold until at least July, opening the door to an interest rate hike before then. Indeed, on June 1st, the Bank announced its decision to raise its trendsetting overnight lending rate by 25 basis points to a ½ a per cent, and indicated it expects the rate of growth to slow for consumer spending.

“Interest rates are expected to rise slowly and at a measured pace during a new era of government spending restraint, so home financing will remain within reach for many homebuyers,” said CREA President Georges Pahud.
CREA had previously forecasted sales would remain at elevated levels through the first half of 2010 before easing in the second half of the year and over 2011. While the forecasted trend for activity has not changed in CREA’s revised forecast, it has been pulled forward, with the fourth quarter of 2009 marking the peak of national activity. This has had the effect of lowering the forecast for national activity over the rest of the year and in 2011.

National activity is forecast to reach 490,600 units in 2010, up 5.5 per cent from 2009 and the second highest annual level on record. Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity. Annual activity in Alberta was also revised downward due to weaker than expected activity in the first quarter. Ontario is still expected to see a record number of sales in 2010, but by a smaller margin than previously forecast.

Interest rate increases will contribute to weaker national sales activity in 2011. Transactions via the MLS® Systems of Canadian real estate Boards are forecast to decline 8.5 per cent to 448,700 units in 2011. Although this is a similar percentage decline compared to CREA’s previous forecast (-7.1 per cent), the downward revision in national activity levels for 2010 means that the forecast level for sales activity in 2011 has also been revised downward.
The national average home price is forecast to climb 1.6 per cent in 2010, reaching a record $325,400, with average price gains forecast in all provinces. The downward revision from the previously forecast 5.4 per cent gain reflects lower forecast sales activity in British Columbia, where most transactions are priced well above the national average.

All provinces are forecast to post modest average price gains in 2011, except British Columbia and Ontario. The forecast decline in activity is sharpest in these two provinces, with higher-priced transactions weakening most. Average prices are forecast to sag in these two provinces in the second half of 2010 before stabilizing next year. As the Ontario and British Columbia shares of national activity edge lower, there will be fewer higher priced properties in the calculation of the national average price. The national average price is forecast to decline by 2.2 per cent in 2011 as a result.

“With interest rates soon expected to rise, Canada is widely believed to be entering a typical demand-driven downturn due to recent prices increases and rising interest rates,” said Chief Economist Gregory Klump. “A downward trend in national sales activity combined with an increase in listings will result in a more balanced market.”

“In keeping with the return of a balanced housing market and typical demand-driven housing market cycle dynamics, prices will remain stable,” he said. “Canada’s solid mortgage market trends, conservative lending practices, and prudent borrowing by homebuyers means that Canada will avoid the massive realignment in housing supply and demand being experienced in the United States. Accordingly, Canada will avoid a U.S.-style housing price correction.”

“Copyright Canadian Real Estate Association. Reprinted with permission.”

Bank of Canada raises interest rates: Canada becomes first country in G7 to hike

For the first time since 2007, the Bank of Canada raised its target for the overnight rate by one quarter of one percentage point to 0.5 per cent on June 1, 2010. The Bank rate was raised to 0.75 per cent and the deposit rate was unchanged at 0.25 per cent, thereby re-establishing the normal operating band of 50 basis points.

The Bank had been keeping its benchmark interest rate at the lowest possible level for more than a year to stimulate the fragile economic recovery.
The Bank noted that while that global economic recovery is well under way, it is unfolding unevenly on a global basis. It characterized the ongoing imbalances as “strong momentum in emerging market economies,” and “some consolidation of the recovery in… industrialized economies,” counterbalanced by the “possibility of renewed weakness in Europe.”

The Bank keyed in on current volatility in the European markets as the largest downside risk to global economic growth saying, “Recent tensions in Europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in some countries.”

The Bank noted that spillover into Canada from events in Europe has resulted in a modest decline in commodity prices and some tightening in financial conditions.

The Bank downplayed slightly stronger than expected inflation and economic growth saying, “CPI inflation has been in line with the Bank’s April projections,” and “activity in Canada is unfolding largely as expected.” It also played up the idea that consumer spending would soon subside: “Going forward, household spending is expected to decelerate to a pace more consistent with income growth.”

As of June 1st, the advertised five-year conventional mortgage rate stood at 5.99 per cent. This is down 0.66 per cent from one year earlier, but stands 0.14 per cent above where it stood when the Bank made its previous interest rate announcement on April 20, 2010. It is also one half of a percentage point above where it stood at the beginning of the year.

“The Bank left its options open as to whether it will raise rates again when it makes its next interest rate announcement on July 20th,” said CREA Chief Economist Gregory Klump. “I expect it will raise rates by another quarter of a percentage point at that time, but will take a pause at some point later this year, especially since interest rates in the U.S. are likely on hold until next year.”

“Even though they are on the rise, mortgage rates will still be at low levels that are housing market friendly, with home financing remaining within reach for many homebuyers,” he added.

The Bank will make its next scheduled announcement on July 20th.

“Copyright Canadian Real Estate Association. Reprinted with permission.”

U.S.-Style Home Price Correction Unlikely in Canada

The Canadian Real Estate Association (CREA) released a new report today indicating that home prices will stabilize, and will remain stable for some time. This means that Canadian homeowners are unlikely to experience a U.S.-style decline in the value of their homes.

“The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, Chief Economist, CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.”

Home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. By contrast, income generally follows an orderly upward trend over time. For home prices to keep pace with incomes, they must rise faster during housing booms to make up for periods of little or no price growth. Canadian home prices were stagnant throughout most of the 1990s, while incomes continued rising, making housing more affordable. Over the past decade, home prices have climbed sharply as mortgage interest rates declined.

Klump adds: “The Canadian housing market is now widely thought to be at, or very near, the top of a cycle, and the ratio of home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle. History suggests, however, that it will not do so by means of a significant correction in home prices. The more likely scenario is that home prices will stabilize, giving incomes a chance to catch up again.”

The correction in U.S. home prices has sparked fears that Canadian home prices may share a similar fate. However, according to Klump, “warnings to this effect ignore solid Canadian mortgage market trends.”

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle. Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. These trends are expected to help Canada avoid a U.S.-style housing crisis.

The correction in U.S. home prices is set against a massive oversupply of homes due to distress sales, combined with a drop in housing demand due to unemployment. The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices.
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“Copyright Canadian Real Estate Association. Reprinted with permission.”

Housing Activity to Stabilize in 2010 and 2011

Housing starts rebounded in the second half of 2009 and early 2010 and will stabilize over the next two years, according to Canada Mortgage and Housing Corporation’s (CMHC) second quarter Housing Market Outlook, Canada Edition.*
Following a total of 149,081 units in 2009, housing starts are expected to be in the range of 166,900 to 199,600 units in 2010, with a point forecast of 182,000 units. In 2011, housing starts will be in the range of 148,600 to 208,800 units, with a point forecast of 179,600 units.
“Canadian housing markets have recovered from the low levels posted in early 2009,” said Bob Dugan, Chief Economist for CMHC. “Moving forward, housing starts will moderate as activity becomes more in-line with long term demographic fundamentals. New measures for government-backed mortgage insurance introduced by the Government of Canada that took effect on April 19, 2010 will continue to support the long-term stability of Canada's housing market.”
Mr. Dugan also noted that the existing home market will move toward balanced conditions over the next two years as MLS®1 sales ease and inventory levels increase. In late 2009 and early 2010, sales activity included some pent-up demand from early 2009. Once this demand is exhausted, and as mortgage rates gradually rise, the pace of activity in the resale market will ease. As a result, existing home sales will be in the range of 484,000 to 513,300 units in 2010, with a point forecast of 497,300 units, and then move slightly lower in 2011 to be in the range of 443,500 to 504,900 units, with a point forecast of 473,500 units.
With an improved balance between demand and supply, the average MLS® price is expected to stabilize through the end of 2010 and then rise modestly in 2011.
CMHC May 19, 2010

BC Home Sales Less Volatile

Vancouver, BC – May 14, 2010. The British Columbia Real Estate Association (BCREA) reports that Multiple Listing Service® (MLS®) residential sales in the province climbed 21 per cent to 8,385 units in April compared to the same month last year. On a seasonally adjusted basis, MLS® residential unit sales in the province declined 4 per cent from March 2010. The average MLS® residential price climbed 15 per cent to $514,820 in April compared to the same month last year.

“BC home sales have trended on an annual rate of 84,000 to 86,000 units over the past three months, down from the 108,000 unit pace recorded in the fourth quarter of last year,” said Cameron Muir, BCREA Chief Economist. A total of 85,028 MLS® residential unit sales were recorded in 2009. “Higher home prices, particularly in Vancouver, the Fraser Valley and Victoria as well as a recent lift in mortgage interest rates has eroded affordability and had an impact on overall housing demand,” added Muir.

The BC residential sales dollar volume increased 73 per cent to $13.5 billion in the first four months of 2010, compared to the same period last year. Residential units sales rose 47 per cent to 26,669 units year-to-date, while the average MLS® residential price climbed 17 per cent to $507,616 over the same period.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”